Pennsylvania Sues IBM for Fraud

By Douglas A. McIntyre Updated Jan 12, 2:02PM EST · Published Mar 12, 6:40AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Pennsylvania Sues IBM for Fraud — © Thinkstock

[cnxvideo id=”507124″ placement=”ros”]International Business Machines Corp. (NYSE: IBM) has found itself in the crosshairs of the governor of Pennsylvania. Governor Tom Wolf said IBM had failed to live up to an expensive contract.

The governor’s office said in a press release it:

… has filed a lawsuit against IBM for their fraud and failures related to the Unemployment Compensation Modernization System project. The project was awarded to IBM in a fixed-price contract for $109.9 million with a completion date of February 2010. The contract was allowed to lapse in 2013.

“All told, Pennsylvania taxpayers paid IBM nearly $170 million for what was supposed to be a comprehensive, integrated, and modern system that it never got,” Governor Wolf said. “Instead, the Department of Labor and Industry has been forced to continue to support many of its UC program activities through a collection of aging, costly legacy systems, incurring tens of millions of dollars in server, support and maintenance costs.”

As delays and costs mounted, a July 2013 independent assessment of the IBM project recommended that DLI not continue with the project because of the high risk of failure.

Accordingly, because IBM’s benefits system presented unacceptable risks and would be unreliable, DLI allowed the UCMS contract to lapse on its September 28, 2013 expiration date. At that point, the UCMS project was 45 months behind schedule and $60 million over budget.

The administration’s suit, filed on behalf of the Department of Labor and Industry, assert claims for breach of contract, fraudulent misrepresentation, negligent misrepresentation, constructive fraud, and fraudulent concealment.

While it is too early to say whether the case has merit, it is a black eye for IBM, which is particularly sensitive to the public’s perception of its place in the world of big technology. It has spent tens of millions of dollars on the features and success of its Watson artificial intelligence services, as a means to show it can compete with tech companies, like Amazon.com Inc. (NASDAQ: AMZN) that have been more financially successful and enjoy the perception they are at the cutting edge of the industry.

[wallst_email_signup]

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.